Overnight Success

Fred Smith's transition from high school to Yale University was challenging. Despite his high school successes, he struggled to adapt to the new environment, failing to make the football team and not meeting the eyesight requirements to become a naval aviator in the Marine Corps Reserve. His dedication to flying and his extracurricular activities led to a decline in his academic performance.

In August 1963, a car accident dramatically impacted his life. While driving with his friend Mike Gadberry, Smith's car crashed, resulting in Gadberry's death and leaving Smith with a concussion and shock. This event was believed by Dr. Coor, a close friend, to have profoundly influenced Smith's future endeavors.

After graduating from Yale in 1967, Fred Smith enlisted in the Marine Corps and was deployed to Vietnam as a Second Lieutenant at the age of 23. His time in the war taught him about mortality, especially as he faced the loss of a friend in a road accident. Despite the risks, Smith proved to be a courageous and skilled soldier, serving with the Third Battalion, Fifth Marine Regiment, First Marine Division. His unit suffered heavy casualties, but Smith managed to survive several close encounters unscathed.

Fred Smith, after returning from Vietnam in 1969, took control of Arkansas Aviation Sales, Inc., a struggling business in Little Rock, Arkansas, that his stepfather had invested in.

Despite having a secure financial future thanks to his father's estate, Smith was motivated by a desire to ensure his mother's well-being. He redirected dividends from the estate to his mother, amounting to a significant sum over ten years.

To prevent his mother from investing her funds into the failing business, Smith, alongside his new wife, moved to Little Rock to save the company. Shifting the business focus to stocking used turbine equipment and selling business jets, Smith's venture quickly turned profitable, making $9 million in sales with $250,000 in profits within two years.

Fred Smith was determined to launch an air express service and faced several challenges, including securing start-up capital, obtaining market data, and getting government approval. He approached Buck Remmell of White, Weld & Company for funding and commissioned Aero Advanced Planning Group and A.T. Kearney & Company for market research, unbeknownst to each other.

Confident in his venture, Smith contracted with Pan Am for 23 Falcon jets, financed by a loan against his father's trust company stock. A graphic designer selected a distinctive purple color for the jets, which were emblazoned with "FEDERAL EXPRESS." Despite the eye-catching fleet, Smith still needed to establish the service's operations.

Incorporated nearly a year prior, Federal Express was still in the planning stages before it could launch its air express service. By the end of 1972, the company reported a revenue of $2.8 million, equally split between airmail contracts and miscellaneous air charter work, against expenses of $3.7 million, resulting in an operating loss of nearly $1 million. This financial situation placed Fred Smith and his father’s trust company $21.7 million in debt.

To address the need for more pilots, Smith initiated the Federal Express Training School, training 273 pilots, mostly ex-military, with the government covering most of the $9,000 tuition fee per student.

In the early days of FedEx, after a disappointing initial launch, the team revamped their network, leading to a successful second start on April 19, 1973, with 183 packages delivered across 22 cities. Despite this success, the company faced financial challenges, being $4.4 million in debt. Fred Smith and his team, driven by a strong sense of unity and dedication, worked tirelessly to overcome these obstacles.

In a critical move to secure more jets, Smith negotiated a deal with General Dynamics, which provided a $23.5 million loan in exchange for a potential stake in FedEx. This deal was a gamble, but it paid off when General Dynamics chose not to exercise its option to buy a majority of FedEx stock. In a legendary turn of events, Smith won $27,000 in Las Vegas, which temporarily saved the company from financial ruin.

In March 1974, FedEx faced a critical moment, requiring an additional $11.5 million to stay afloat. The consortium decided that Fred Smith, then 30, should step down as chairman and CEO due to his lack of commercial experience. They appointed retired Air Force General Howell M. Estes as the new CEO with a $75,000 salary, while Smith was offered a two-year contract as President at $40,000.

Charles Lea of New Court Securities expressed the need for a front man to attract investors, as capital raising is a demanding task involving numerous presentations and detailed inquiries.

Despite the official change, Estes served more as a figurehead, with the staff continuing to report to Smith, who remained the driving force behind the company.

At 30, Fred Smith faced a pivotal moment in his business career, risking a $5,000 fine and two years in prison. Despite pleading not guilty, the trial loomed. During this tense period, Federal Express's Board and senior officers, excluding General Estes, rallied in support of Smith, offering their resignations should he be forced out.

Ultimately, Estes departed, Art Bass became President, and Smith was named Chairman, though real power shifted to an Executive Committee led by Charles Lea. Amid financial struggles, with a $11.5 million annual loss and $49 million in loans, FedEx astonishingly turned a profit in July 1975, marking a historic turnaround to profitability by the next year.

In 1976, FedEx turned a profit of $3.5 million, which climbed to $8.1 million in 1977 and $20 million in 1978. Growth was initially restricted due to regulations preventing the use of larger aircraft on key routes. However, after lobbying efforts, FedEx was able to acquire Boeing 727s in November 1977, significantly enhancing its cargo capacity.

Fred Smith also restructured the company's capital, borrowing $4.7 million to buy back warrants and increase his ownership to about 25%. The company went public on April 12, 1978, raising $17.5 million and seeing its stock price soar from $24 to around $250 within two years.

Fred Smith faced a significant challenge as Federal Express expanded: maintaining the strong sense of unity and purpose among a growing workforce that had been crucial to the company's early success. To achieve this, Smith delved into history, business theory, and military tactics, eventually crafting a guiding principle for FedEx: PEOPLE - SERVICE - PROFIT. This credo emphasized the importance of balancing the needs of employees, customers, and shareholders, with a priority on employee well-being, understanding that satisfied employees lead to superior customer service and, consequently, profitability.

In the 1980s, Fred Smith, the founder of FedEx, aimed to expand the company globally, identifying a significant opportunity when Flying Tigers, a leading heavyweight cargo carrier, was up for sale. Despite initial rejection, FedEx successfully acquired Flying Tigers in 1988 for $880 million, gaining access to its extensive network and landing rights in 21 countries. This acquisition was crucial for FedEx, which, despite its dominance in the U.S. market, faced challenges establishing a presence overseas, with losses amounting to about $75 million by 1988.